Ministry of Investments and Development

of Republic of Kazakhstan

Almaty Ring Road PPP (BAKAD)

London, December 9, 2014

Contents
Subject Slide
Introduction 3
Technical parameters 7
Financial structure 13
Contractual aspects 22
Tender process 30

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Project Snapshot

• Part of the “Western China – Western Europe”

transnational highway
• Population served1 – c. 2,000,000

• Greenfield bypass toll road

• Length – 66 km (4/6 lanes)
• CAPEX – est. $680m

• Remuneration based on availability payments

• Currency risk mitigation mechanism
• Other standard project finance features (incl.
termination, arbitration, step-in provisions, etc.)

[1] Includes Almaty and three neighbouring districts, 2014.

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Importance of BAKAD

Infrastructure
 Construction of a key link in the “Western China – Western Europe”
transnational highway
 Reduction of commuting time to Almaty

Signalling effect
 First large PPP in Kazakhstan
 First large infrastructure project outside of the Oil&Gas sector financed
with private capital
 Pipeline of road projects

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Project Team
Ministry of Investments and Development
(Automobile Roads Committee)

IFC EBRD
Lead Transaction Advisor Mobilized grant to co-finance project preparation

Sweco International Kocks PPP TA Unit Archaeology Gide Loyrette Nouel

(Sweden) Consult (Kazakhstan) Expedition (France/Russia)
(Germany) (Kazakhstan)

Design Institute Engineering Center Colibri Ernst & Young

“TRTI” (Sweco) Astana Law Firm (Russia/
(Russia) (Kazakhstan) (Kazakhstan) Kazakhstan)

Design Institute
“Dortrans”
(Kazakhstan)

Other stakeholders:
• JSC “Kazakhstan Center for Public-Private Partnership” (PPP Center): Regulator under Ministry of National Economy
• RSE “Gosexpertiza” (Independent State Expert Review): Regulator under Ministry of National Economy
• Local municipal and regional authorities (akimats): Public-sector beneficiaries of the project

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Contents
Subject Slide
Introduction 3
Technical parameters 7
Financial structure 13
Contractual aspects 22
Tender process 30

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Technical Parameters: Overview

Construction period 50 months Operations period c. 15.5 years

66 км long 27 k vehicles
4/6 lanes

April-October 23 23
construction season toll plazas entrances

Cost of Construction (US$ m)

Year 1 Year 2 Year 3 Year 4 Year 5 Total: US$
86 114 285 163 33 680m
12 intersections 21 bridges 19 viaducts
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Technical Parameters: Construction
Parameter Unit Total
Construction length (length) km 66
Road category -- Ι-ϴ
Design speed km/h 150

Number of traffic lanes

-
ϔ) on sections Stake 0-55 and Stake 570-660 4
-
B) on sections Stake 55-570 6
Traffic lane width m 3.75
Road shoulder width m 3.75
Width of the hard part of the road shoulder m 2.5
Width of median m 6.0
Width of safety strip near the median m 1.0
Carriageway width
A) with 4 lanes m 4Љ
3.75
B) with 6 lanes m 6Љ
3.75

Width of pavement
A) with 4 lanes m 22
B) with 6 lanes m 29.5

Width of roadbed
A) with 4 lanes m 28.5
B) with 6 lanes m 36

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Technical Parameters: CAPEX

• Estimated cost of construction: Cost of Construction

(US$ mln)
US$680 m
300 285
• CAPEX estimated by GoK’s advisors
based on: 250

 Detailed designs
200
 Local methodology for cost 163

estimation 150
114
• Approved by Gosexpertiza 100 86

• Bidders allowed to review CAPEX

50 33
estimates during bidding process

0
Year 1 Year 2 Year 3 Year 4 Year 5

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Technical Parameters: Traffic
Average Annual Traffic Volumes, 2018
TRAFFIC STUDY 50,000
45,000

Number of Vehicles
40,000
35,000
• Transport model based on economic development 30,000
forecasts, 2 traffic counts and a WTP/O-D survey 25,000
20,000
15,000
• Unique vehicles entering motorway begin at 78,495 vpd 10,000
5,000
and rise to 112,650 vpd by 2038 -
P1-P2 P2-P3 P3-P4 P4-P5 P5-P6 P6-P7 P7-P8 P8-P9 P9-P10 P10-P11P11-P12
• Average Daily Traffic: Road Segment
 2018: 27,308 vpd
Heavy trucks/buses Medium trucks/buses Light trucks/buses Cars
 2038: 44,344 vpd
Average Annual Traffic Volumes, 2038
• Substantially, all traffic is local (commuters) 80,000

Number of Vehicles
70,000
 Proportion of trucks increases over time (western 60,000
China-Western Europe Corridor) 50,000
40,000

• Traffic expected to be remarkably stable given variable 30,000

weather conditions throughout the year 20,000

10,000

Cross-section traffic figures -

P1-P2 P2-P3 P3-P4 P4-P5 P5-P6 P6-P7 P7-P8 P8-P9 P9-P10 P10-P11P11-P12

Weighted average Cars Trucks Total AADT Road Segment

(% total) (% total) (real vpd) (equiv. vpd) Cars

Heavy trucks/buses Medium trucks/buses Light trucks/buses
2018 forecast 88 12 27,308 32,838
2038 forecast 78 22 44,344 56,970

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Technical Parameters: Tolling

TOLLING STRATEGY

• Toll rates set by GoK

• Concessionaire to collect tolls on behalf of GoK and

transfer toll revenue to the state budget

• Concessionaire to supply tolling equipment

Toll Plaza
• “Open” toll system
Intersection
 Flat fee upon entry
 No ‘main carriageway’ toll plazas
 “Congestion charge” approach

• 23 toll plazas (15 + 8)

• GOK interested in creating conditions for seamless Comparison of proposed tolls against benchmarks
transition between toll roads to be developed in
ss
Toll rate International benchmark Suggested
Kazakhstan
gro
(KZT) Min Max toll rates
 To be discussed with short-listed bidders Class 1 - light vehicles 343 489 240
Class 24 -- minivans
Class heavy trucks 399
536 570
765 240
385
Class 3 - light trucks 456 651 325

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Contents
Subject Slide
Introduction 3
Technical parameters 7
Financial structure 13
Contractual aspects 22
Tender process 30

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Transaction Structure
• 20-years BTO
• Traffic revenues collected by concessionaire and transferred to GoK
• Concessionaire remunerated through front-loaded availability payments
• Paid in local currency but government to compensate for currency fluctuations

Availability Payments
(illustrative)

Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Year 11Year 12Year 13Year 14Year 15Year 16Year 17Year 18Year 19Year 20
Compensation other expenses Investment Cost compensation

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Investment Cost Compensation
Investment cost compensation – Fixed
 Cost of construction including interest during construction (LIBOR + 3%) and other elements
 Paid during first years of operation (to mimic debt repayment schedule)

Availability Payments
(illustrative)

Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Year 11Year 12Year 13Year 14Year 15Year 16Year 17Year 18Year 19Year 20
Compensation other expenses Investment Cost compensation

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Compensation of Other Costs
Compensation of other costs– Fixed
 OPEX, REPEX, tax, cost of capital and other costs
 Paid during operations period

Availability Payments
(illustrative)

Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Year 11Year 12Year 13Year 14Year 15Year 16Year 17Year 18Year 19Year 20
Compensation other expenses Investment Cost compensation

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Currency Risk Compensation
Currency risk compensation – Variable
 Additional public subsidy to compensate for any devaluation-depreciation of KZT Vs US$ above 5%
(cumulative)

Availability Payments
(illustrative)

Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Year 11Year 12Year 13Year 14Year 15Year 16Year 17Year 18Year 19Year 20

Compensation other expenses Investment Cost compensation FX compensation

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Availability Payments

AVAILABILITY PAYMENTS, A SUM OF

• Investment cost compensation
 Cost of construction and other
 Paid during first [10] years of operation (to mimic debt repayment schedule)

• Other cost compensation

 OPEX, REPEX, tax, cost of capital and other costs
 Paid during operations period

• Currency risk compensation

 Additional public subsidy to compensate for any devaluation-depreciation of KZT Vs US$

• Other
 Performance penalties, other

• Credit rating Kazakhstan: BBB+ (S&P), Baaa2 (Moody’s)

• Strong interest from lenders: IFC, EBRD and ADB

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Risk Matrix

Type of risk Grantor Concessionaire

Land expropriation

Financing risk

Inflation and cost overruns

Commissioning of road; meeting hand-back standards

Availability of road; meeting operating standards

Traffic risk

Currency fluctuations

Termination payment; discriminatory change in law

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Transaction Structure: Modifications

MODIFICATIONS SINCE PREVIOUS INVESTORS CONFERENCE

• Traffic risk: Transferred to GoK
 Availability payments applicable to “projects of exceptional significance”
• FX risk: Transferred almost fully to GoK
 Government to compensate for currency fluctuations above 5%
• Bankability: Step-in rights for lenders allowed
 Government to sign a Direct Agreement with lenders
• Dispute resolution mechanism: International arbitration outside of Kazakhstan applicable to PPPs
 International arbitration allowed even if SPV is registered in Kazakhstan
• Limited incentives for private sector efficiency
 Availability payment not adjusted for efficiency gains
• Tender process:
 Two-stage tender process allowed
• Mandatory use of local templates for the preparation of bidding documents
 International templates approved and adapted to local legislation

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Land Expropriation

STATUS OF THE LAND ACQUISITION PROCESS

• Land expropriation process near completion

 96% of landplots have been acquired

 Completion of land expropriation and delivery of the site is a condition precedent to the Concession
Agreement

 Grantor will provide the land free of any encumbrances, with no adverse claims pending in court

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Contents
Subject Slide
Introduction 3
Technical parameters 7
Financial structure 13
Contractual aspects 22
Tender process 30

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Legal & Institutional Framework (1)

• Strong political will and clear government policy to promote BAKAD project
• Stable institutional framework dedicated to concessions, including a PPP Center set up to implement

the policy framework and to assist in the selection of PPP projects

• Established legal and regulatory framework, including the Law of the RK on Concessions No. 167-III

dated 7 July 2006 (as amended) and tender rules that allow a fair and transparent selection of

concessionaires

• BAKAD project awarded in the form of a concession by Order of the Government of the RK No. 1518

dated 31/12/2013. Recognized as a project of special importance (Order of the Government of the RK

No. 1060 dated 7/10/2014)

• Established investment protection (against illegal acts of state bodies, against nationalization and

requisition, right to use and dispose of revenues)

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Legal & Institutional Framework (2)

• Enhanced attractivity of the Kazakh legal and regulatory framework, thanks to recent legal amendements

allowing:

 Signing of the concession agreement by the SPV itself

 Conclusion of a direct agreement

 International arbitration in case of a dispute between resident entities

 Mitigation of FX risk through adjustment of availability payments

 Provision of termination payments in line with best practices

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Contractual Aspects of the Concession (1)

• Concession Agreement based on international best practices and Kazakhstani law

CONTRACTING PARTIES
• Government of Kazakhstan acting through the Ministry of Investments and Development (Grantor)
• A resident SPV created by Successful Bidder (Concessionaire)
CONDITIONS PRECEDENT (CP)
• Delivery of Site to the Concessionaire
• Execution of financing agreements, fulfilment (waiver) of all conditions precedent thereto
• Provision of construction works programme and submission of design to Grantor
• Delivery of construction bond
• Obtaining all necessary consents by Concessionaire; delivery of certificates of insurance
DURATION OF THE CONCESSION
• CPs to be fulfilled <6 months from signature of Concession Agreement
• Construction period starts when all CPs are fulfilled ("Commencement Date") and last <50 months from
Commencement Date
• Operation period starts when certificate of acceptance of the construction works is issued and ends 20
years after Commencement Date

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Contractual Aspects of the Concession (2)

FINANCIAL ISSUES

• Concessionaire responsible for arranging financing

• Direct agreement between Grantor, lenders and Concessionaire

• Availability payments to be paid semi-annualy during period of operation as exclusive source of

compensation

• Availability payments to be adjusted if certain risks materialize (MAGA, FX, etc)

INTERFACE ISSUES

• Grantor can exercise control over compliance with contractual terms/conditions via Grantor
Representative, approving Concessionaire’s annual programme, monitoring of records (in particular in
respect of toll collection), disclosure obligations and Grantor step-in (conduct of required actions)

• Sections of “WC – WE” corridor will also be tolled (incl. Almaty-Khorgos): interoperability implications

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Contractual Aspects of the Concession (3)
LABOR
• Concessionaire to comply with Equator Principles and Law.
• No specific local content requirements for project.

ENVIRONMENTAL
• Concessionaire to conduct environment and social assessment, and establish an Environmental
Social Management System.
• Concessionaire responsible for strictly complying with Law and Equator Principles relating to protection
of environment, health and safety.

OPERATIONAL PERFORMANCE REQUIREMENTS

• Deductions to availability payments, in case of:
 defect(s) (immaterial, material or dangerous): i.e. deviation from GOST/SNiP requirements;
 non-performance: i.e. failure to comply with detailed technical, reporting or other requirements;
 unavailability: i.e. closure of any lane or lanes / entries to user traffic.

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Contractual Aspects of the Concession (4)

VARIATION PROCEDURE

• Concession Agreement provides for a variation procedure in line with PFI standards, subject to
Kazakhstani budgetary procedures when compensation is to be paid by Grantor.

STABILIZATION PROVISIONS
• Subject to strict conditions, Concessionaire entitled to compensation through adjustment of
availability payments and/or extension of time and/or relief in event of:
 Adverse Government Action;
 Force Majeure;
 Qualifying Change in Law.

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Contractual Aspects of the Concession (5)

TERMINATION PAYMENTS

• Concessionaire Default: (1) – (5)

• Grantor Default or Prolonged AGA: (1) + (2) + (3) – (5)

• Prolonged Force Majeure: (1) + (4) – (5)

With:

(1): lowest of: (i) Capital Expenditure already incurred, or (ii) “Cost of the Concession Object”, multiplied by:
(percentage of ICC remaining due at Termination Date) × 0.9

(2): termination costs

(3): an amount, which when taken together with dividends (or other distributions) paid by the
Concessionaire and equity invested or other forms of investment on or before Termination Date taking into
account the actual timing of all such payments, gives a real internal rate of return of 13%.

(4): mitigation costs.

(5): insurance proceeds received by the Concessionaire.

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Contents
Subject Slide
Introduction 3
Technical parameters 7
Financial structure 13
Contractual aspects 22
Tender process 30

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Tender Requirements

• Form of the bidders: single entity or consortium

• Access of the bidders to a virtual data room

• Bid applications shall comprise:

 First stage bid application, to be submitted at Step I (qualification stage)

 Second stage bid application, to be submitted at Step II, including:

• Feasibility study (“TEO”, including technical and financial offers)

• Bid security, in the form of a bank guarantee or in the form of a deposit (equal to 0.1% of value of
concession object)

• Contents of the applications: 1 printed original, 1 printed copy, 1 electronic copy

• Language of the applications: Kazakh or Russian. Additional electronic copy in English is recommended

• Bid application validity period: 12 months from date of expiry of the second stage bid application
submission deadline

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Qualification Criteria

STEP I – BIDDERS QUALIFICATION

Main qualification criteria:

• Financial and material resources for the project: Participated over last 10 years in at least 2 projects
satisfying any of the 3 following categories:

 category 1: investment in a project of construction or reconstruction of motor roads >US$40 mln; or

 category 2: >=2 contracts as general contractor in a project of construction and (or) reconstruction
of motor roads with >=4 traffic lanes in similar climatic conditions >US$190 mln; or

 category 3: assets (book value) of a project operated (managed) >US$190 mln.

• Bidders must have a net worth of not less than 10% from the value of the concession object

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Slide 31: Qualification Criteria

STEP II – SUBMISSION OF SECOND STAGE BID APPLICATIONS

• Technical criteria: pass / fail review of compliance with technical specifications of the project + sign
undertaking to contribute no less than 10% of cost of concession object in the form of equity

• Financial criterion: minimum amount of government support discounted at 8%

• Technical evaluation carried out by MID, Expertiza and PPP center.

• Financial offers of only those bidders who passed the previous stage will be opened

• Bid approved by expert reviews, meeting technical criteria and providing for lowest discounted
availability payments is designated as first-ranked bid

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Tentative Tender Schedule
Event Tentative Timelines

 Deadline for requests for clarification at Step I January 3, 2015

 Deadline for submission of Bids for Step I February 3, 2015

 Invitation to submit documents for Step II End of February 2015

 Deadline for requests for clarification at Step II June 29, 2015

 Deadline for submission of documents for Step II July 29, 2015

 End of evaluation phase at Step II Not later than end of November 2015
 Negotiations with the first-ranked bidder Within 6 months from designation of the best bid

 Bid approval and announcement of the successful

Within 1,5 month from end of negotiations
bidder
 Signing of the concession agreement Within 90 days from announcement of the successful bidder

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